Sunday, June 26, 2011

Understanding Short Term Investment & Long Term Investment; What to Invest in 2011

What is Short Term Investment & Long Term Investment, What to Invest in 2011:
A property that is bought and resold within six to twelve months is referred to as a a short term investment in the real estate market, whereas a property held for three to five years and then sold is referred to as a long-term investment.
Here is a closer look at the real estate trends that have emerged in Pakistan since 1995:
  • 1995-2000: Investment was primarily long-term and property prices appreciated by nearly 60 to 70%.
  • 2000-2005: Long term investment continued and investors enjoyed heavier appreciations as the economic landscape improved.
  • 2006-Present: The short-term investment term began in 2006, when an unstable economy discouraged investors from investing in Pakistan; they opted for the Middle East instead. The people who choose to invest in Pakistan did so only for short periods of time (from six months to a year), after which they either made other short term investments to stopped investing in Pakistan altogether.
The effect of short-term investments in the real estate market include:
  • Investors now prefer to sell their property as soon as it's value increase by six to seven percent; when prices decrease by even one percent, they purchase new properties.
  • Continuous short-term investments eventually affect the long term scenario of the real estate market. Ideally, property appreciation at the end of a five-year period should be 25 to 30%. However, if short-term investment continuous, appreciation will remain significantly low, reaching only three to four percent.
  • Ultimately, short term investments hamper the growth of the real estate sector and result in undervaluing the net worthy of the property. 
To discourage this trend, the Government should introduce value discount incentives for investors who hold on to properties for at least five years. This will encourage long-term investments, eventually rectify the problem and improve the current state of the real estate market.

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